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Northern Petroleum – Italy Drilling. It all helps

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43 billion cubic feet of gas sounds like a lot. I am sorry to say that it is not as vast as it sounds. In fact it is rather small (call it 750,000 barrels of oil). This is the Tosca-1 well where AIM listed Northern Petroleum (LSE:NOP) has announced that it has now started drilling.  It will take 40- days to reach target depth. The well is in the gas rich Po Valley in Italy. So why do we care?

The point is that with existing infrastructure nearby, if gas is found it can be tapped quickly and cheaply. And Northern’s drilling costs are largely funded by Orca Exploration which farmed into the prospect.  So for a few quid upfront Northern might have another modest cash generator coming onstream in 2013.

The point is that Northen has vast acreage in Italy, second only in land size to state owned ENI. Some of its prospects in the Southern Adriatic could be vast. Others in the Po valley are small gas plays. For years it seems to have been sitting on them with nothing much happening and consequently, as I argued HERE, the market seems to value its Italian acreage at not a lot. If the company can work hard to farm out a string of these small Po valley gas plays and get them drilled up with others paying it risks nothing. It s not as if it will be seen to be giving away the family silver. But the upside of having a series of small cash generators coming on stream could hardly harm sentiment. If that changes, given that any sensible break up value has to be at 200p plus, then the shares should be re-rated materially from today’s 69p.

So come on Northern, let’s stop having an AGM every couple of months (quite an Italian concept in a way) and get cracking on Italian farm outs.

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